2014 (1) TMI 179 - AT - Income Tax

ITAT upholds assessee's tax deduction under sec. 194C for crane hire payments

ACIT (TDS) Noida Versus Container Corporation of India Ltd.

The ITAT dismissed the revenue's appeals, affirming that the assessee correctly deducted tax at source under sec. 194C for payments related to hiring ... Applicability of section 194C of the Act – Payment made for hiring of buses – Laibility to deduct tax u/s 194-I of the Act – Held that:- Following [2014 (1) TMI 386 - ITAT DELHI] - The services were rendered by the contractor through their own man using the cranes - The cranes were brought to the respective sites and they were operated by the staff of the contractor - Thus, assessee has not taken any machinery on hire for which it has paid the rent – It is a simplicitor service contract for transportation of the passengers and it falls within the ambit of clause (c), Sr. No.(IV) of explanation appended to sec. 194C – the assessee has just hired the transportation facilities which is akin to hiring of a taxi though on regular basis for a fixed number of hours - where a vehicle is given on hire along with provisions of a driver for use of carrying of the passengers for fixed hours than it is a service contract for carrying out the work. It will be covered under sec. 194C of the Act because the vehicle has been made available as a matter of service – thus, it is a service contract and assessee was to deduct tax under sec. 194 C of the Act - The assessee has availed the services of cranes which was operated by staff of the contractor – Thus, the Assessing Officer has erred in construing that assessee had paid rent and its case falls u/s 194I – the assessee had rightly deducted tax at source u/s 194C of the Act – Decided against Revenue. Issues:- Interpretation of tax deduction provisions under sec. 194C and sec. 194I for hiring of buses and cranes.- Application of service contract vs. rent for hiring plant or machinery.- Correctness of tax deduction by the assessee under sec. 194C.Analysis:1. Interpretation of Tax Deduction Provisions: The appeals involved a dispute over the correct application of tax deduction provisions under sec. 194C and sec. 194I for hiring of buses and cranes. The revenue contended that sec. 194-I was applicable for hiring of buses, while the assessee argued that sec. 194C was the appropriate provision. The Assessing Officer believed that the assessee should have deducted TDS under sec. 194-I for payments related to hiring of cranes, considering it as a rent for hiring plant or machinery.2. Service Contract vs. Rent for Hiring Plant or Machinery: The crux of the matter was whether the transactions between the assessee and the contractors constituted a service contract or a rent for hiring plant or machinery. The assessee maintained that it had not hired any machinery but had entered into service contracts where the contractors provided services using their own cranes and operators. The ITAT considered similar cases and held that the assessee had not taken machinery on hire, supporting the view that it was a service contract falling under sec. 194C.3. Correctness of Tax Deduction by the Assessee: The ITAT examined the nature of the agreements between the assessee and the contractors, emphasizing that the assessee had availed services of cranes operated by the contractors' staff. The ITAT, in line with its previous rulings, concluded that the assessee had correctly deducted tax at source under sec. 194C, rejecting the revenue's argument that the payments should have been treated as rent under sec. 194I. The tribunal upheld the order of the Ld CIT(A) in favor of the assessee.4. Precedents and Legal Interpretation: The ITAT referred to previous decisions and legal interpretations to support its findings. It cited a case involving a similar issue of hiring buses and distinguished between service contracts and rent for hiring plant or machinery. The ITAT's analysis considered the specific provisions of sec. 194C and the nature of the contracts to determine the appropriate tax deduction section, aligning with the principles established in relevant legal precedents.5. Conclusion: Ultimately, the ITAT dismissed the revenue's appeals, affirming that the assessee had correctly deducted tax at source under sec. 194C for the payments related to hiring of cranes. The tribunal's decision was based on a thorough examination of the facts, contractual agreements, and legal provisions, ensuring consistency with past rulings and legal interpretations. The judgment highlighted the importance of accurately categorizing transactions to determine the applicable tax deduction provisions, resolving the dispute in favor of the assessee based on the nature of the service contracts involved.